Irish industry defies British gloom with 23-month high

Irish manufacturing experienced the strongest pace of growth in 23 months in June, defying the effects of a weaker pound and out of step with struggling British factories.

UK manufacturing missed out on a demand-driven surge in activity elsewhere in Asia and Europe in June, as weakness in sterling failed to translate into export growth, surveys showed.

Factories in the Euro zone rounded off the first half of 2017 by ramping up at the fastest rate for over six years while Asia’s tech-manufacturing economies were helped by growing global demand for electronics products.

Ireland shared in the uplift, according to the latest Investec purchasing managers index (PMI) for the manufacturing sector.
But British manufacturing grew more slowly than anyone polled by Reuters expected as consumers faced the double-hit of accelerating inflation – caused in large part by the fall in the pound since last year’s vote to leave the EU – and slowing wage growth.

At home, a continued rise in new orders including for exports, drove growth. The news suggests that Irish manufacturers have yet to experience a significant fallout from Brexit, with firms continuing to hire more staff and invest in growing their levels of stock.

Cost inflation remained sharp in June, but the data suggests that in many cases Irish firms have been successful in passing increased costs to customers and firms’ profitability remained in positive territory for the second successive month. “Business sentiment remained strongly positive in June, with more than six times as many respondents expecting production to increase over the coming 12 months, as opposed to those anticipating a decline,” Philip O’Sullivan, Investec Ireland’s chief economist, said. That the growth rate in the manufacturing sector quickened in the three months to June 30 from the first three months of 2017 is not surprising, given how leveraged Ireland is to international economic developments and the improving global backdrop.

While in the Eurozone factories rounded off the first half of 2017 by ramping up at the fastest rate for over six years, British manufacturing grew more slowly than expected. Consumers there faced the double hit of accelerating inflation – caused in large part by the fall in the pound since last year’s vote to leave the EU – and slowing wage growth.

The Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) fell to 54.3 from a downwardly revised 56.3 in May, a three-month low and below all forecasts in a Reuters poll of economists that pointed to a reading of 56.5. Above 50 indicates growth. “The decline in the [UK] PMI in June robustly challenges hopes that manufacturing and exports will pick up and offset the consumer spending slowdown,” Samuel Tombs, at Pantheon Macroeconomics, said yesterday.

“The manufacturing report weakens the case for raising interest rates soon,” Mr Tombs added. The data suggests the supposed silver lining of a weakened pound – more competitive exports – is proving somewhat elusive and could make Bank of England officials think twice about raising interest rates, as had been mooted. In Asia, manufacturing growth also picked up, helped by growing global demand for electronics products. While manufacturing expanded at the fastest pace in three months in June in China, business confidence slumped amid a government crackdown on debt risks and tightening financial conditions. (Additional reporting Reuters)